Detailed Job Candidate profiles

Sihao CHEN

Job Market Paper

International Production Networks and the Propagation of Financial Shocks

Abstract: We investigate the international production networks channel through which external sectoral shocks are transmitted to a small emerging country---Mexico. In our two-country model, the international production linkages of the emerging economy are explicitly characterized but the country has no economic impact on the large economy (U.S.) because of asymmetric country sizes. Using structural factor analysis, we show that the U.S. financial shocks, especially their idiosyncratic components, account for a significant fraction of GDP fluctuations in Mexico. Importantly, the shocks are transmitted mainly through the international production linkages. We further argue for the necessity of modeling production sharing sectors, in which cross-border inputs are complementary. Lastly, we present empirical evidence on the U.S. financial shocks' propagation via international production networks.

Xiu CHEN

Job Market Papers

(1) How time flies!

Abstract: The paper points out a potential gap between intertemporal choices and time preference: the observed intertemporal decisions could be driven by a biased perception of time, and thus may not completely reveal the true time preference. To test this conjecture, we explore the relationship between underlying time perception and the observed intertemporal choices by conducting a laboratory experiment, in which cognitive load is used as an instrument to manipulate time perception. We find that the perceived time lengths for subjects with high cognitive load are shorter than those with low cognitive load. Moreover, there is a correlation between an individual’s time overestimation and his observed impatience. Lastly, our results suggest that time perception mediates part of the cognitive load’s effect on intertemporal choices, supporting our conjecture.

(2) Concentration and Variability of Forecasts in Artificial Investment Games: An Online Experiment On WeChat

Abstract: This paper is the first to use the WeChat platform, one of the largest social networks, to conduct an online experiment of artificial investment games. We investigate how people’s forecasts about the financial market are shaped by whether subjects can observe others’ forecasts and whether subjects engage in public or private investment decisions. We observe a strong positive correlation between forecasts and investments, suggesting an association between individual’s reported forecast and his belief. More importantly, we find that with forecast sharing, subjects’ forecasts converge but in different directions across groups, and there is not significantly more rational decisions made.

Wing Fung CHENG, John

Job Market Paper

Envy of Neighbours: Contests with Network-Specific Externalities

Abstract: There is an interesting phenomenon that people buy lottery tickets because they would be miserable if their neighbours won and they were left out. We examine the effect of neighbours' envies by considering a lottery contest in which individuals are in one of the two networks and each network has its network-specific negative externality. We find that two interesting phenomena may arise in equilibrium. First, only the individuals in the network with large externalities exert effort while individuals in the network with moderate externalities do not exert any effort. Second, a smaller network has a higher probability of winning which can be viewed as another version of the group size paradox. We contribute to the contest literature by showing the effect of network-specific negative externalities on equilibrium outcomes.

Research Interests

Zhengqing GUI

Job market paper:

Financial Fraud and Investor Awareness

Abstract: In our experiment and survey, we find that investors, especially risk-averse ones, become less likely to invest in fraudulent financial products with unrealistically high returns after receiving an eye-opening education program. This suggests that investors can be exploited by financial fraud due to their unawareness of the underlying high risks associated with high returns. We build a model in which a firm strategically chooses whether to offer a fraudulent product to naive investors. Education reduces the fraction of naive investors, which then attenuates or even eliminates the firm's incentive to commit financial fraud. We then study the roles of price (rate-of-return) competition, information disclosure, and regulatory instruments, such as an interest rate ceiling, legal punishment, and a public education program, and find that none of them guarantees an improvement in investors' welfare.

Xiaoxiao HU

Job Market Paper

Abstract: Complementary to the existing literature that extensively studied credence goods markets in static settings, we develop a dynamic model in which a durable good breaks down stochastically after treatments, and the customer meets the expert recurrently. We assume that the minor treatment alleviates the symptom of the major problem but fails to cure it, increasing the future failure rate. In contrast to the literature, we show that the truth-telling equilibrium never exists under the verifiability assumption, because the standard equal-margin condition fails. In our dynamic setting, the expert has a stronger incentive to undertreat since undertreatment induces more future business. But on the other hand, the customer becomes less willing to pay for the minor treatment for fear of increased future payments. Therefore, depending on the relative magnitude of these two opposing forces, either undertreatment or overtreatment can emerge in equilibrium. Surprisingly, the expert's incentive to undertreat weakens as the increment of failure rates rises.

Bo WANG

Job Market Papers

(1) Name, Politician Selection, and Political Accountability

Abstract: We introduce a name market into an overlapping generations model to address politician selection and political accountability when there is no re-election concern. We show the name market could mitigate both problems. On the one hand, name screens young politician; on the other, name incentivizes old politician. Therefore, politician selection and political accountability arise even in the absence of re-election. With the name market, we further examine the relationship between transparency on politician’s type and citizen’s welfare. Because transparency on politician’s type is a perfect substitute of the name, such transparency crowds out name demand, and may ultimately reduce citizen’s welfare. Due to such crowding out effect, we identify a new inter-generation conflict over transparency policy: while the young generation is a keen advocate of high transparency, the old prefers low transparency.

(2) Network, Coordination, and Contagion

Abstract: We provide an endogenous network formation model in which agents pay a cost to form an information network before coordination. We show on equilibrium, such a network takes the shape of a star network, which aggregates and communicates information to every participant, and ultimately enhances the chance of coordination success. We further introduce a name market to screen agents with the highest leadership ability to be the center of the star. The leadership and name market reinforce each other over time, leading to coordination contagion. Moreover, we identify a non-monotonic relationship between linking cost and coordination success; by such a relationship, we derive the optimal linking cost and discuss its policy relevance.

Shufei WANG

Job Market Paper

Putting Comparative Advantage to Work within the Multi-Product Firm

Abstract: This paper analyzes how comparative advantage can directly affect the allocation of activity across products within multi-product firms in a novel way. By constructing product-level comparative advantage index, we map a country's comparative advantage into individual multi-product firms. We first document three basic facts. Firms' product sales are skewed towards their comparative advantage products. Firms reduce (expand) their produce scope by dropping (adding) more comparative disadvantage products and shift sales towards (away from) comparative advantage products over time. In markets where they sell fewer products, firms drop comparative disadvantage products and shift sales towards comparative advantage products. To rationalize these facts, we extend Bernard, Redding, and Schott (2011) to include variable markups and comparative advantage. Our model predicts that firms' core competence is in their comparative advantage products which also feature higher sales and higher markups. Increased competition from a positive demand shock or an appreciation of Home currency induces firms to drop their comparative disadvantage products on the extensive margin and shift their sales towards comparative advantage products on the intensive margin. The predictions are consistent with the documented facts and are confirmed by exploiting variations from the removal of MFA quotas on textiles and apparel industry and from exchange rate fluctuations.

Job Market Paper

Debt Overhang and Inefficient Capital Reallocation

Abstract:This paper develops a general equilibrium model of firm over-borrowing with debt overhang, providing a novel angle for evaluating preventive policies during a corporate credit boom. When capital decisions must be made under idiosyncratic uncertainties, firms’ individually optimal investments ex-ante fail to internalize their effects on raising equilibrium asset price and overall indebtedness which, through debt overhang, squeezes borrowing capacity ex-post, weakens reallocation and depresses productivity. This pecuniary externality leads to a wedge between private and social costs of debt, thereby leaving room for regulations. Optimally set policy mix is time-consistent, whereas restrictions on ex-ante regulation, such as circumvention and insufficient legal mandates, create a role for commitment on ex-post intervention, in which case bailing out existing debts is less desirable than subsidizing new ones.

We quantify the magnitude of inefficiency using an augmented industry dynamics model parameterized by a pan-European firm-level dataset. In the model, capital reallocation efficiency drops by 20% less in credit crunch if the economy ex-ante de-leverages to the constrained efficient level. In addition, the excessive accumulation of long-term debt during years of credit boom leads to declining capital reallocation efficiency not only in boom years but also in the credit bust that may follow.

Xianqiang ZOU

Job Market Paper

One Child Policy and Intergenerational Mobility In China

Abstract: This paper theoretically and empirically examines how fertility decline induced by the One Child Policy has affected intergenerational mobility in China. In a simple human capital in- vestment model incorporating fertility and credit constraints, we show that fertility decline narrows the educational attainment gap between children from credit-constrained families and non-credit-constrained families, hence increases the intergenerational mobility. We also provide empirical evidence to verify our theoretical predictions. Using variation in the implementation intensity of the One Child Policy across regions and cohorts, we address the endogeneity of the fertility decision. Estimation results show that lower fertility increases intergenerational mobility.